Every successful audit is based on sound
planning and an atmosphere of constructive involvement and communication
between the client and the auditor. I see quite a few audit
organizations that include a Web-based explanation to their clients how
the audit process works. The purpose of providing this page is for those
audit organizations that have not explained to their clients how, in
general, the audit process works. It also is designed to provide a
resource for sharing tools and techniques for each of the distinct
phases of the audit process. If you have tools or resources that you
would like added to these pages please send them to editor@auditnet.org.
Thanks to Terry Radke, Director
Indiana University - Internal Audit for allowing AuditNet® to "borrow"
the audit process description they use for their customers. I also added
links to other sites to help illustrate or clarify the process.
Click here for sample documents used in the audit process.
For a brief overview including a summary of types of audits click here.
Audit Process
Although
every audit project is unique, the audit process is similar for most
engagements and normally consists of four stages: Planning (sometimes
called Survey or Preliminary Review), Fieldwork, Audit Report, and
Follow-up Review. Client involvement is critical at each stage of the
audit process. As in any special project, an audit results in a certain
amount of time being diverted from your department's usual routine. One
of the key objectives is to minimize this time and avoid disrupting
ongoing activities. Following are some sample flowcharts of the process
from other organizations that you may find helpful:
Central Queensland University Internal Audit Process
European Space Components Internal Audit Procedure guide includes a flow chart of the audit process.
University of Illinois Audit Process Flowchart
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Planning
During the planning portion of the
audit, the auditor notifies the client of the audit, discusses the scope
and objectives of the examination in a formal meeting with organization
management, gathers information on important processes, evaluates
existing controls, and plans the remaining audit steps.
Announcement Letter
The client is informed of the audit
through an announcement or engagement letter from the Internal Audit
Director. This letter communicates the scope and objectives of the
audit, the auditors assigned to the project and other relevant
information.
Initial Meeting
During this opening conference
meeting, the client describes the unit or system to be reviewed, the
organization, available resources (personnel, facilities, equipment,
funds), and other relevant information. The internal auditor meets with
the senior officer directly responsible for the unit under review and
any staff members s/he wishes to include. It is important that the
client identify issues or areas of special concern that should be
addressed.
Preliminary Survey
In this phase the auditor gathers
relevant information about the unit in order to obtain a general
overview of operations. S/He talks with key personnel and reviews
reports, files, and other sources of information.
Internal Control Review
The auditor will review the unit's
internal control structure, a process which is usually time-consuming.
In doing this, the auditor uses a variety of tools and techniques to
gather and analyze information about the operation. The review of
internal controls helps the auditor determine the areas of highest risk
and design tests to be performed in the fieldwork section. Click here
for an annual internal control review plan.
Audit Program
Preparation of the audit program
concludes the preliminary review phase. This program outlines the
fieldwork necessary to achieve the audit objectives.
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Fieldwork
The fieldwork concentrates on
transaction testing and informal communications. It is during this phase
that the auditor determines whether the controls identified during the
preliminary review are operating properly and in the manner described by
the client. The fieldwork stage concludes with a list of significant
findings from which the auditor will prepare a draft of the audit
report.
Transaction Testing
After completing the preliminary
review, the auditor performs the procedures in the audit program. These
procedures usually test the major internal controls and the accuracy and
propriety of the transactions. Various techniques including sampling
are used during the fieldwork phase.
Advice & Informal Communications
As the fieldwork progresses, the
auditor discusses any significant findings with the client. Hopefully,
the client can offer insights and work with the auditor to determine the
best method of resolving the finding. Usually these communications are
oral. However, in more complex situations, memos and/or e-mails are
written in order to ensure full understanding by the client and the
auditor. Our goal: No surprises.
Audit Summary
Upon completion of the fieldwork,
the auditor summarizes the audit findings, conclusions, and
recommendations necessary for the audit report discussion draft.
Working Papers
Working papers are a vital tool of
the audit profession. They are the support of the audit opinion. They
connect the client’s accounting records and financials to the auditor’s
opinion. They are comprehensive and serve many functions.
Working Paper Documentation
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Audit Report
Our principal product is the final
report in which we express our opinions, present the audit findings, and
discuss recommendations for improvements. To facilitate communication
and ensure that the recommendations presented in the final report are
practical, Internal Audit discusses the rough draft with the client
prior to issuing the final report. For an audit report template
including an executive summary click here.
Discussion Draft
At the conclusion of fieldwork, the
auditor drafts the report. Audit management thoroughly reviews the
audit working papers and the discussion draft before it is presented to
the client for comment. This discussion draft is prepared for the unit's
operating management and is submitted for the client's review before
the exit conference.
Exit Conference
When audit management has approved
the discussion draft, Internal Audit meets with the unit's management
team to discuss the findings, recommendations, and text of the draft. At
this meeting, the client comments on the draft and the group works to
reach an agreement on the audit findings.
Formal Draft
The auditor then prepares a formal
draft, taking into account any revisions resulting from the exit
conference and other discussions. When the changes have been reviewed by
audit management and the client, the final report is issued.
Final Report
Internal Audit prints and
distributes the final report to the unit's operating management, the
unit's reporting supervisor, the Vice President for Administration, the
University Chief Accountant, and other appropriate members of senior
University management. This report is primarily for internal University
management use. The approval of the Internal Audit Director is required
for release of the report outside of the University.
Client Response
The client has the opportunity to
respond to the audit findings prior to issuance of the final report
which can be included or attached to our final report. However, if the
client decides to respond after we issue the report, the first page of
the final report is a letter requesting the client's written response to
the report recommendations.
In the response, the client should
explain how report findings will be resolved and include an
implementation timetable. In some cases, managers may choose to respond
with a decision not to implement an audit recommendation and to accept
the risks associated with an audit finding. The client should copy the
response to all recipients of the final report if s/he decides not to
have their response included/attached to Internal Audit's final report.
Client Comments
Finally, as part of Internal
Audit's self-evaluation program, we ask clients to comment on Internal
Audit's performance. This feedback has proven to be very beneficial to
us, and we have made changes in our procedures as a result of clients'
suggestions.
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Audit Follow-Up
Within approximately one year of
the final report, Internal Audit will perform a follow-up review to
verify the resolution of the report findings.
Follow-up Review
The client response letter is
reviewed and the actions taken to resolve the audit report findings may
be tested to ensure that the desired results were achieved. All
unresolved findings will be discussed in the follow-up report.
Follow-up Report
The review will conclude with a
follow-up report which lists the actions taken by the client to resolve
the original report findings. Unresolved findings will also appear in
the follow-up report and will include a brief description of the
finding, the original audit recommendation, the client response, the
current condition, and the continued exposure to Indiana University. A
discussion draft of each report with unresolved findings is circulated
to the client before the report is issued. The follow-up review results
will be circulated to the original report recipients and other
University officials as deemed appropriate.
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Internal Audit Annual Report to the Board
In addition to the distribution
discussed earlier, the contents of the audit report, client response,
and follow-up report may also communicated to the Audit Committee of the
Board as part of the Internal Audit Annual Report.
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The Process: A Collaborative Effort
As pointed out, during each stage
in the audit process--preliminary review, field work, audit reports, and
follow-up--clients have the opportunity to participate. There is no
doubt that the process works best when client management and Internal
Audit have a solid working relationship based on clear and continuing
communication.
Many clients extend this working
relationship beyond the particular audit. Once the audit department has
worked with management on a project, we have an understanding of the
unique characteristics of your unit's operations. As a result, we can
help evaluate the feasibility of making further changes or modifications
in your operations.
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Administration
Audit Planning
Audit Fieldwork (Testing)
Audit Sampling
Audit Reporting
Customer Survey
Audit Follow-Up
Read more: http://www.auditnet.org/process.htm#ixzz0vefY1tZG
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